Japan's central bank has been buying large amounts of dollars -- and then U.S. Treasury bonds -- in an effort to prop up the dollar against the yen so that Japanese exports remain competitive in the U.S. market.
That buying of Treasury bonds is pushing bond prices up and bond yields down. Because mortgage rates track long-term bond yields, low bond yields are translating into low mortgage rates.
Susan Cinkala, left, and husband Dean with their children, Justin, 10, and Whitney, 7, at their Potomac home. Dean Cinkala has lost track of how many times he has refinanced in recent years. "I'm just continually trying to drop my interest rate," he said.
(Bill O'leary -- The Washington Post)
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"Nobody realized the Japanese would do this to this extent," Wyss said. "In January, they bought just under $65 billion. All of last year, they bought $186 billion. They're going to break last year's record by the end of the first quarter the way they're going."
The Japanese aren't the only reason rates are low. The state of the U.S. economy -- particularly the continued soft employment picture -- has a big influence.
"Many analysts were expecting 200,000-plus new jobs to be created in January," said Frank Nothaft, chief economist at Freddie Mac. "We got about half that." Besides fewer jobs being created, the number of mass layoffs also rose sharply in January, with more than 2,400 employers across the country laying off 50 or more workers.
"As long as we have a weak job market, interest rates will stay low," said Sung Won Sohn, chief economist at Wells Fargo & Co., one of the country's largest mortgage lenders.
Low inflation also is playing a part.
"We have no inflation," said Nothaft of Freddie Mac. "Over 2003, the core of the consumer price index went up only 1.1 percent, the lowest rate since the mid-1960s. And inflationary pressures look minimal."
With inflation so low, the Federal Reserve has little incentive to start raising short-term rates, which also helps keep down long-term rates, such as those on mortgages.
Another influence on rates is the wide use by big investors of a strategy called "carry trading," which has also increased demand for long-term Treasury bonds.
